International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Canada: Filing deadline approaching for Canadian foreign affiliate dumping rules

bailey.jpg

jones.jpg

Bryan Bailey


Josh Jones

The Canadian foreign affiliate dumping (FAD) rules were introduced in March 2012 to prevent foreign multinational corporations from achieving certain tax advantages by causing a Canadian subsidiary to hold investments in foreign (non-Canadian) affiliates (FA). Generally, the FAD rules apply where a corporation resident in Canada (CRIC) that is controlled by a non-resident corporation (the parent) makes an 'investment' in an FA. An investment is defined broadly to include, among other things, an acquisition of shares, contribution of capital, and certain acquisitions of debt. Where the FAD rules apply, the CRIC may be deemed to have paid a dividend to its parent generally equal to the amount of the investment, unless certain provisions apply to reduce the paid-up capital (PUC) of the CRIC's shares by the amount of the investment (PUC offset rule). Any such deemed dividend would be subject to Canadian withholding tax, even though no amount may be extracted from Canada.

For a deemed dividend to be reduced by the PUC offset rule, the CRIC is required to file a form with the Canada Revenue Agency (CRA) on or before the CRIC's filing due date for its taxation year that includes the time in which the deemed dividend would otherwise arise. The FAD rules were amended in December 2014 to add this requirement, but it applies to all transactions occurring after the introduction of the rules in March 2012. Grandfathering provisions generally extend the filing deadline to the later of December 16 2015 and the CRIC's filing due date for its taxation year that includes December 16 2014.

If the form is not filed on time, the CRIC will be deemed to have paid a dividend to the parent on the filing due date (although, in certain circumstances, any resulting Canadian withholding tax may be refunded). As there is currently no prescribed form, the CRA accepts that a letter containing certain specific information will satisfy the form requirement.

As the filing deadline approaches, foreign multinational corporations should consider the application of the FAD rules to any investments made by a Canadian subsidiary in an FA during or after March 2012 to determine whether the filing of the form is required to avoid the application of Canadian withholding tax.

Bryan Bailey (bryan.bailey@blakes.com) and Josh Jones (josh.jones@blakes.com), Toronto

Blake, Cassels & Graydon

Tel: +1 416 863 2297 and +1 416 863 4278

Website: www.blakes.com

more across site & bottom lb ros

More from across our site

Lawmakers have up to 120 days to decide the future of Brazil’s unique transfer pricing rules, but many taxpayers are wary of radical change.
Shell reports profits of £32.2 billion, prompting calls for higher taxes on energy companies, while the IMF has warned Australia to raise taxes to sustain public spending.
Governments now have the final OECD guidance on how to implement the 15% global minimum corporate tax rate.
The Indian company, which is contesting the bill, has a family connection to UK Prime Minister Rishi Sunak – whose government has just been hit by a tax scandal.
Developments included calls for tax reform in Malaysia and the US, concerns about the level of the VAT threshold in the UK, Ukraine’s preparations for EU accession, and more.
A steady stream of countries has announced steps towards implementing pillar two, but Korea has got there first. Ralph Cunningham finds out what tax executives should do next.
The BEPS Monitoring Group has found a rare point of agreement with business bodies advocating an EU-wide one-stop-shop for compliance under BEFIT.
Former PwC partner Peter-John Collins has been banned from serving as a tax agent in Australia, while Brazil reports its best-ever year of tax collection on record.
Industry groups are concerned about the shift away from the ALP towards formulary apportionment as part of a common consolidated corporate tax base across the EU.
The former tax official in Italy will take up her post in April.